Rising Interest Rates Have Put Bank Stocks in a Bind
Prior to this year, bank management teams had been waiting well over a decade to experience a real rising interest rate environment. They caught a glimpse of it between 2015 to 2019 but rates were still historically low.
Then inflation ran rampant this year and the Fed found itself behind the curve, forcing it to quickly raise its benchmark overnight lending rate, the federal funds rate, from practically zero to currently inside a range of 3.75% and 4%. Banks benefit from rising interest rates because it boosts the yields on a lot of their loans and securities, and should ideally lead to margin expansion if banks can hold deposit and funding costs in line.
But the pace of these rate hikes has exceeded all expectations, with the Fed having done four consecutive 0.75 percentage point rate hikes in the back half of the year. Now, it's putting banks in a bit of a bind. Here's why.
Source Fool.com
